American Resources Ins. v. H & H Stephens

• Citation: 939 So.2d 868
• Decision Date: 24 March 2006
• Docket Number: 1040054.
• Parties: AMERICAN RESOURCES INSURANCE COMPANY v. H & H STEPHENS CONSTRUCTION, INC.
• Court: Supreme Court of Alabama

Page 868

939 So.2d 868

AMERICAN RESOURCES INSURANCE COMPANY v. H & H STEPHENS CONSTRUCTION, INC.

1040054.

Supreme Court of Alabama.

March 24, 2006.

Michael S. Jackson of Beers, Anderson, Jackson, Patty & Van Heest, P.C., Montgomery, for appellant.

K. Donald Simms and Benjamin J. Woolf of Austill, Lewis & Sims, P.C., Birmingham, for appellee.

Robert A. Huffaker of Rushton, Stakely, Johnston & Garrett, P.A., Montgomery, for amicus curiae Property Casualty Insurers Association of America, in support of the appellant.

Joe Espy III and J. Flynn Mozingo of Melton, Espy & Williams, P.C., Montgomery, for amici curiae Susanne E. Giganti, as personal representative of the estate of Garnet Michelle Garvin, and Matthew Phillips, in support of the appellee.

SMITH, Justice.

American Resources Insurance Company appeals from an order of the Bibb Circuit Court holding that American Resources was obligated to provide insurance coverage under an umbrella insurance policy American Resources issued to H & H Stephens Construction, Inc. We reverse the trial court's judgment and render a judgment in favor of American Resources.

Facts and Procedural History

On April 11, 2003, Kenneth Gilmore, an employee of H & H Stephens acting within the scope of his employment duties, was operating a vehicle that collided with a vehicle driven by Garnet Michelle Garvin. Garvin was killed, and her passenger, Matthew Phillips, was injured.

On the date of the collision, H & H Stephens was insured by three policies issued by American Resources: (1) policy no. BA22989, entitled "Commercial Auto Coverage Part Business Auto" ("the auto policy"); (2) policy no. CP64842, entitled "Commercial Lines Policy" ("the general-liability policy"); and (3) policy no. XL52606, entitled "Commercial Umbrella Policy" ("the umbrella policy"). In addition, H & H Stephens had in place an automobile-liability policy issued by Canal Insurance Company ("the Canal policy").

Susanne Giganti, Garvin's mother and the personal representative of her estate, subsequently sued H & H Stephens seeking damages for wrongful death. Phillips also notified H & H Stephens that he intended to sue H & H Stephens to seek recovery for the injuries he suffered in the accident. In accordance with the Canal policy, Canal Insurance undertook H & H Stephens's defense and tendered $1,000,000 — the full limits of its policy—to Giganti and Phillips, as the injured parties. American Resources, however, refused to defend H & H Stephens, contending that its three policies provided no coverage to H & H Stephens for the accident involving Giganti and Phillips.

H & H Stephens filed a third-party complaint naming American Resources, Giganti, and Phillips as third-party defendants. In its third-party complaint, H & H Stephens sought a judgment declaring that American Resources had a duty to provide coverage to H & H Stephens under one or more of the three policies American Resources had issued to H & H Stephens. H & H Stephens, American Resources, Giganti, and Phillips submitted the declaratory-judgment action to the trial court on stipulated facts and jointly introduced exhibits.

After conducting a hearing on the declaratory-judgment action at which the trial court heard oral arguments, the trial court ruled that American Resources had no obligation to defend or to provide coverage to H & H Stephens under the auto policy or the general-liability policy.¹ However, the trial court held that the umbrella policy "is ambiguous and, further, that a reasonably prudent person would have understood and expected the Umbrella policy to extend coverage to Giganti's claims and Phillips'[s] claims."²

The trial court concluded that the umbrella policy was ambiguous because although the title page of the policy is captioned "Commercial Umbrella Policy" and the declarations page includes an "Endorsement Schedule" stating that the policy contains an "Umbrella Coverage Form," the policy does not include an "Umbrella Coverage Form." Instead, the policy contains an "Occurrence Excess Policy" provision that is not mentioned in the "Endorsement Schedule."

The trial court held that the discrepancy between the title page, the declarations page, and the policy provisions was "significant" and "patently misleading." Central to the trial court's conclusion was the distinction it drew between "umbrella policies" and "excess policies." Those types of policies, in the trial court's view, "serve distinct and competing objectives." The trial court explained:

"Excess policies provide an additional step of coverage above underlying primary insurance and, as such, generally do not provide any broader coverage than that provided by the underlying policy. Scottsdale Ins. Co. v. Safeco Ins. Co. Of America, 111 F.Supp.2d 1273, 1278 (M.D.Ala.2000). In contrast, umbrella policies provide the broadest coverage available. Id. at 1277. As recently observed by the Alabama Supreme Court in Royal Ins. Co. of America v. Thomas, [879 So.2d 1144, 1155 (Ala. 2003)], `Umbrella policies differ from standard insurance excess insurance policies in that they are designed to fill gaps in coverage both vertically (by providing excess coverage) and horizontally (by providing primary coverage).'"

The trial court then discussed the "Auto Liability Following Form" endorsement in the umbrella policy ("the umbrella endorsement"), which states that the policy provides no coverage for "`bodily injury' or `property damage' arising out of the ownership, maintenance, use or entrustment to others of any `auto'" unless "coverage is provided in `underlying insurance.'" The definitions section of the umbrella policy defines "underlying insurance" as "the coverage(s) afforded under insurance policies designated in Item 7 of the Declarations and any renewals or replacements of those policies." Item 7 of the declarations lists three policies: the general-liability policy, the auto policy, and a workers' compensation policy issued by Midwest Employers Casualty Company.

The insurance policy in effect on the vehicle operated by Gilmore—that is, the Canal policy—is not designated in Item 7 of the declarations in the umbrella policy. American Resources, citing this Court's decision in Greene v. Hanover Insurance Co., 700 So.2d 1354 (Ala.1997), therefore argued that the umbrella policy did not provide coverage to H & H Stephens for the events giving rise to Giganti's and Phillips's claims.

The trial court rejected American Resources' argument that the umbrella endorsement was unambiguous and should be enforced to deny coverage to H & H Stephens. The trial court stated that an umbrella policy generally serves two objectives. First, the trial court explained that "[t]he purpose of an umbrella policy is to fill gaps, both vertically and horizontally, when coverage is otherwise unavailable." Second, the trial court reasoned that an umbrella policy "is supposed to remove the risks associated with placing excess insurance on the wrong exposure."

The trial court rejected American Resources' argument that the umbrella policy provided H & H Stephens with "umbrella coverage for general liability claims not involving automobiles and ... umbrella coverage for automobile liability insured by American Resources." In the trial court's view, accepting American Resources' argument would frustrate both of the objectives identified—that is, "H & H Stephens would be left with a vertical gap (excess) in coverage .... [and], assuming the Canal policy did not exist, H & H Stephens would be left with a horizontal gap too."

The trial court also rejected American Resources' contention that this Court's decision in Greene, supra, was controlling. Instead, the trial court relied upon the following language from Royal Insurance Co. of America v. Thomas, 879 So.2d 1144, 1155 (Ala.2003):

"An umbrella policy could not fill a horizontal gap in coverage by providing primary coverage if it provided coverage only for insureds who were covered by underlying insurance. In effect, Royal is arguing that the umbrella policy it issued affords only excess coverage rather than umbrella coverage. However, the designation of the coverage as `umbrella' on the declarations page of the Royal policy forecloses that argument."

Noting that "H & H Stephens is engaged in the business of hauling and toward such end operates a fleet of trucks" and that "[o]bviously, auto liability coverage is important to [H & H Stephens]," the trial court concluded:

"It therefore follows that a reasonably prudent person relying on the American Resources Commercial Umbrella policy would find his expectations defeated if American Resources could deny coverage under its Umbrella policy. As such, `those policy terms should be ignored in accordance with the reasonable expectations rule.' Allen D. Windt, Insurance Claims and Disputes, § 6.13 at 409 (3d ed.1995). In other words, this Court rejects a construction of the policy that would negate its umbrella character. Occidental Fire & Cas. Co. of North Carolina v. Brocious, 772 F.2d 47, 54 (3d Cir.1985)."

The trial court therefore ordered that American Resources was obligated to provide coverage to H & H Stephens under the umbrella policy for Giganti's and Phillips's claims, and American Resources appealed.³

Standard of Review

The trial court in this case applied the law to undisputed, stipulated facts. Our review therefore is de novo.

"When reviewing a case in which the trial court sat without a jury and heard evidence in the form of stipulations, briefs, and the writings of the parties, this Court sits in judgment of the evidence there is no presumption of correctness. Old Southern Life Ins. Co. v. Williams, 544 So.2d 941, 942 (Ala.1989); Craig Constr. Co. v. Hendrix, 568 So.2d 752, 756 (Ala.1990). When this Court must determine if the trial court misapplied the law to the undisputed facts, the standard of review is de novo, and no presumption of correctness is given the decision of ...